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Executive Summary -Problem: Currently, the U.S. taxes its firms on a worldwide bases. -Consequence: Taxing firms on income earned abroad discourages U.S. firms to invest in the U.S. -Remedy: The U.S. should adopt legislation that implements a territorial tax system. Tax Foundation Video on the basics of foreign taxes for U.S. firms.Video

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Problems & Consequences 2012 J.P Morgan Study: U.S. multinational firms have over $1.7 trillion in non-repatriated foreign earnings, which may remain offshore permanently.Study Not repatriating foreign earnings: -lowers U.S tax revenues; -rewards foreign investment over U.S. investment.; and -increases compliance costs Taken together, these factors hinder employment and innovation in the U.S.

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Policy Proposal: Move the U.S. to a territorial tax system BenefitsBenefits, according to the Senate Republic Policy Committee: -Allow U.S. firms to repatriate bring foreign income back to the U.S. without being taxed -Remove the tax disincentive for domestic investment with foreign income -Decrease the influence that tax considerations have on business decisions -Lower compliance costs, make it more likely that global businesses are located in the U.S. Taken together, these benefits may increase employment in the U.S.

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Potential Criticisms of Territorial Tax Systems -According to the CBO, territorial tax systems lower U.S. revenueCBO -Broader U.S. corporate tax base Rebuttal: Employment gains, and its effects, may compensate -The Center on Budget and Policy Priorities says territorial tax system may facilitates tax evasion and shifting income to tax havensThe Center on Budget and Policy Priorities Rebuttal: Legislation could make it illegal to park income in tax havens